Fixing carbon credits requires a new financing model

Area of Science:

• Environmental science
• Climate change economics
• Carbon markets

Background:

• Carbon-crediting mechanisms are crucial for net zero targets.
• Many current offset projects lack environmental integrity.
• Scaling carbon dioxide removal (CDR) is essential for geological net zero.

Purpose of the Study:

• To address market barriers hindering the scale-up of permanent carbon removal.
• To propose a novel financing model for novel CDR technologies.
• To improve the environmental integrity and investment attractiveness of carbon credits.

Main Methods:

• Analysis of current carbon-crediting mechanisms and their limitations.
• Development of a tiered auction framework proposal.
• Integration of first-of-a-kind finance mechanisms.

Main Results:

• Current focus on implementation challenges is insufficient for scaling CDR.
• A new financing model is required to reduce price volatility and increase credit prices.
• The proposed tiered auction framework can build and scale markets for novel CDR.

Conclusions:

• Scaling permanent carbon removal necessitates innovative financing models beyond implementation improvements.
• Tiered auctions with quality standards and novel finance can effectively scale CDR technologies.
• Addressing market barriers is key to leveraging CDR for climate goals.